Gaming and Leisure Properties Inc (GLPI) 2018 Q1 法說會逐字稿

Greetings, and welcome to the Gaming and Leisure Properties' First Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Hayes Croushore. Please go ahead, sir.

Thank you, Stacy, and good morning, everyone. We'd like to thank you for joining us today for Gaming and Leisure Properties' First Quarter 2018 Earnings Call and Webcast. The press release distributed earlier this morning is available in the Investor Relations section of our website at www.glpropinc.com.

On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. Examples of forward-looking statements include those related to revenue, operating income and financial guidance as well as non-GAAP financial measures such as FFO and AFFO.

As a reminder, forward-looking statements represent management's current estimates and the company assumes no obligation to update any forward-looking statement in the future. We encourage listeners to review the more detailed discussions related to these forward-looking statements contained in the company's filings with the SEC and the definitions and reconciliations of non-GAAP financial measures contained in the company's earnings release.

On this morning's conference call, we're joined by Peter Carlino, Chairman and Chief Executive Officer; and Bill Clifford, Chief Financial Officer of Gaming and Leisure Properties, Inc. Also joining are Steve Snyder, Senior Vice President of Development; Desiree Burke, Chief Accounting Officer; and Brandon Moore, Senior Vice President, General Counsel and Secretary.

Now I'd like to turn the call over to Peter Carlino. Peter?

Well, thanks, Hayes, and good morning, everyone. We are again happy to report a very good quarter with some strong announcements. Obviously, revenues and earnings are in line with our expectations. Our -- I'll acknowledge that our TRS properties were a little soft, largely due to horrendous weather in January and February, although I'll comment that things appear to be better and stronger, and we expect that those properties will be more in line as we look ahead.

We had -- we're thrilled to have been able to report the signing of a transaction with Tropicana and to have identified a new operator with Eldorado Resort, that's just a terrific addition to our portfolio of great operators. Of course, we're tracking along well with the PENN Pinnacle transaction, which welcomes Boyd gaming into our operator ranks, which is just terrific. Couldn't be more excited about that. We expect both of those transactions to close, to be safe, let's say third quarter of this year. And that suggests that 2018 should be a very, very strong year for this company. And I think predictably, '19 should be even better. So we're feeling very, very good about that.

Another comment I'll make is that you've seen the release that Bill Clifford will be retiring. Bill has been a significant part of everything that we have done in this company, all the major movements over the years. Only Steve Snyder, who's sitting to my left, has been here longer. And that includes Penn National as well. So -- and in that time, we built a terrific company at PENN, and Bill was very much a part of that, and then led this effort to form Gaming and Leisure Properties from PENN. And those years and that time and that decision has produced enormous value for shareholders, who have been with us over a long period of time. So I just -- I want to acknowledge that with Bill present. And he's going to stick with us for -- provide some oversight and thought over the next months while we transition through this period.

And so Bill, officially, thanks very much. It's been terrific. It goes fast, though. It goes very fast, the years, as I look back.

So I think this is a strong report. And with that, I'm going to -- unless there's any other comment from the table here, I think we'll go straight to your questions, as we usually do. So operator, please open the floor.

(Operator Instructions) Our first question comes from Thomas Allen with Morgan Stanley.

And Bill, thanks for all the help over the years and good luck in retirement.

Thank you.

So can we just talk a little bit about the Tropicana deal? Can you just elaborate a little bit about how it came together, how the process worked and kind of your expectations going forward?

I'll let Steve...

Thomas, it's Steve. Yes. We had been working with Eldorado folks for, really, years. I was going to say several quarters, but it's really years in terms of trying to develop and cultivate a relationship. They obviously completed their Isle transaction without a sale leaseback or an OpCo-PropCo approach. Most recently, the discussions focused on what other opportunities existed because they, I expect, to continue to be a consolidator in the regional gaming space. And we collectively identified an opportunity with Tropicana Entertainment, being publicly traded, but controlled by a single shareholder. So we jointly approached Tropicana -- we jointly approached their large shareholder and entered into an exclusivity period with them and conducted due diligence. So we spent quite a bit of time with the Eldorado folks both around this property and around their management approach and the opportunities that they see in the Tropicana portfolio based on the results and the performance they've been able to drive out of the Isle transaction. So they are very optimistic in terms of margin improvements and opportunities for enhancements in the performance of the Tropicana portfolio. And I do think, as they said, as Tom and Gary Carano said on their phone call, they look at the OpCo-PropCo opportunities as ways to continue to facilitate their growth. So the announcement that you saw on April 16th, you should look at, is really the outcome of several quarters of developing a relationship with an intense 60-day period since the beginning of the year that led to that announcement. As to the timing, Peter mentioned, we think this will close later this year. I think reasonably, it's probably a year-end closing because New Jersey and Indiana are 2 new states for Tropicana -- or for Eldorado, and they've already gone forward with the submission of their applications, and we're doing exactly the same. So we're pretty optimistic that this is a transaction that will close or should close before year end.

Helpful. And then -- I mean, you mentioned you had been talking to them around the Isle deal, too. What held back a transaction happening with you and -- or around the Isle transaction, too?

No. We didn't speak with them specifically about the Isle transaction. They obviously made a decision that they were comfortable with the equity dilution that they took on behalf of existing Isle shareholders at that time. So that was not a transaction that we were engaged in, in extensive -- in any dialogue in Eldorado. It really was just, again, something that they decided to go at alone.

Our next question comes from Carlo Santarelli with Deutsche Bank.

Bill, congratulations. Peter, could you talk a little bit about, as you think about a new CFO, kind of what are some of the criteria you're looking for, for that candidate? And would you be looking more from an M&A background or more kind of a REIT experience, gaming experience, et cetera?

Boy, that's a tough question to start with. That's awful. Probably both. That's something we're looking at, that's why we have not announced precisely what we're going to do and who's going to do it as we look at the world. There's, like, 3 legs to that stool. One, we are still focused on the gaming world. And knowledge of the gaming business is helpful, but clearly, in the end, we're really a finance company. At least, that's the way I think of ourselves. So dealing with the capital markets is kind of what we do. We operate a couple properties happily, but fundamentally, we're in the finance business. So I think -- and we're probably going to look at the REIT world more broadly, [I haven't] thought about that. That's -- you fairly asked that question, so that having some knowledge and experience in REIT world, since we are clearly a REIT, I think would be helpful. So in the perverse -- and I guess the answer is all the above. And I think the general view is we'll know it when we see it.

Understood, that's helpful. And then just in terms of the Tropicana transaction, the decision to go with a 1.85x minimum rent coverage, a little bit lower than some of your other deals, with a guaranteed escalator. How much of that decision was fueled by the success that ERI has had with respect to generating synergies and stuff from some of the assets, given there's obviously some new competition coming to Atlantic City, et cetera?

Yes, I'll let Steve speak to that. But fundamentally, we have a great deal of confidence in these folks. And that did very much influence our judgment. But Steve?

Yes, Carlo. They are very optimistic around the opportunities for margin improvement in that portfolio. They were comfortable with guaranteeing the 2% base rent escalators through the fifth anniversary, subject of course, to not putting the lease in default at 1.2x coverage. So that spoke volumes in terms of our getting comfortable with the impact that the openings in Atlantic City will have on that large property, Tropicana, on the boardwalk because it speaks volumes when your tenant steps up and says, "We hear you, but we are comfortable with the construct that guarantees you 5 years of escalators." So I'm not going to tell you that we completely agreed with our tenant in terms of what the impact might be of the Hard Rock and the Revel reopenings. But the proof is in what they were willing to put on the table in terms of those stipulations or those conditions in the lease.

Yes, let me add. Look, these are highly experienced people. They've been around this business in very competitive markets for a very long time. So I think that informs part of our judgment, Steve, as well.

No, I think that hits it spot on, Peter. I mean, these are markets that they were familiar with. These are markets that they are comfortable competing in. And having competed for the last couple of decades in Reno, they know how to handle competition.

Our next question comes from Joe Greff with JPMorgan.

I'd like to say congratulations to Bill as well. You've had a great career and I'll miss working with you. I look forward to seeing your index continue to migrate down on [gin.com].

Thanks.

Obviously, you've been busy on the acquisitions front. Are you kind of in pause mode right now until these things -- until the 2 sets of acquisitions close and...

So what kind of question is that? We are never in pause mode. Never. You got to be kidding. Look, you've heard me make the comments many, many, many times over the years. Look, if it's out there, alive and breathing, you can count on the fact that we're looking at it. But finding transactions that we want to make, that we feel good about, is always the challenge. As I like to say, many are called, but few are chosen. And that goes on all the time. So my general view, particularly as I say, we're in the finance business, is to keep our powder dry and to be prepared and then be looking very aggressively, as we always do. I mean, this is kind of a stock answer, but nothing changes.

Got it. And then, obviously, you have the share count referenced in the press release. Did you issue any equity under the ATM this month at all?

No, we did not.

Our next question comes from Shaun Kelley with Bank of America.

This is Barry Jonas. First off, Bill, congratulations. Been a pleasure working with you. I guess, Peter, it begs the question. Curious how you're thinking about your own time line for continuing, at least in an operating role. Any general thoughts on succession planning?

That's a tough question. Don't count on seeing me go anywhere for a very long time. Listen, you asked the question, I'll do this as long as we can be effective. And since we are, in my judgment, highly effective, and you look at the way this business has grown over the years. Maybe the day will come when I'll feel that isn't the case. But right now, having too much fun.

Fair enough. And then, just one question on the Eldorado master lease. I guess, can you just maybe give a few more details in terms of how much of the total rent will be subject to the escalator? And the bearable rent reset, what sort of timeline that will be, whether it's 2 years or 5 years?

Yes, it's going to be set at closing based on the revenues of the portfolio over the 12 months prior to closing. It will be reset every 2 years, consistent with the existing Pinnacle master lease. And in terms of base versus the 2 variable components, you should think 70-ish, in the 70%-plus range, in terms of base rent that would be subject to the 2% escalator.

Go ahead.

Just a clarification, the escalator is only on the base -- the land base rent, which is usually probably about half of that. But we haven't set those numbers yet. So we do the best -- the escalator is only on a portion of our fixed rent, not on our -- on the second portion of our fixed rent.

So it would be approximately on 70% of the $110 million or less than that?

No, it's less than that, what would be subject to the escalator is less than that.

Our next question comes from Patrick Scholes with SunTrust Robinson Humphrey.

Question for you on Atlantic City. As I recall in the past, you've been somewhat cautious on entering that market. Talk just a little bit why your mind is changing now and your thoughts on that market going forward?

Well, we're doing it with a partner, as I think we well explained, who likes the property. It would appear that those folks invested a great deal -- the owners invested a great deal of their cash flow over the years in improving that place. Steve, do you want to comment more broadly on that? It's in terrific condition.

Yes -- no. As the sellers indicated, they've reinvested all of the free cash flow that they've gotten out of Tropicana over the years that they've owned it in the properties, quite a bit of that being in Atlantic City. I mean, just the way we've looked at it, if you look at the aggregate portfolio and the rent that we'll be deriving from our new tenant, Eldorado, approximately 40-ish percent of it is going to be coming out of that Atlantic City market. So we really do look at it as a sort of diversified portfolio with some concentration in Atlantic City. Would we do Tropicana Atlantic City on its own as a standalone lease? I think you know the answer to that: absolutely not. But given the nature of this tenant, the opportunities that they see to improve the operating performance across the portfolio and their experience in other comparable markets, we were able to get comfortable proceeding with this transaction.

Yes, I think it says a lot more about Eldorado, when you start thinking about it. That clearly informed our judgment. It's who we're dealing with here, and we feel good about that.

Okay. And then, shifting gears somewhat here. There was an article over the weekend in the St. Louis Post-Dispatch suggesting there might be some regulatory risk of [gate] being approved for that market. I don't know of you have any thoughts on that regard.

We do, and Brandon's going to tell you.

Yes. We obviously saw the article, and I think as we look at that market and other markets in this, we went through a pretty in-depth review of our lease on the federal level and the anticompetitive effects or lack thereof in the Pinnacle transaction, and we're very confident that our lease in that deal and our lease in this deal don't present any opportunity for us to impact competition in any of those markets or in any market at all. And we're confident on that level that we're going to be fine. I wouldn't say we're confident on the state regulatory level, but we're certainly very optimistic for the same reason. Those leases just don't permit us to impact competition. And if you look at the St. Louis market in particular, currently, on a pro forma basis, we'd have 4 publicly-traded operators in that market. And even if the PENN and Pinnacle deal finishes, we'll still have 3 publicly-traded operators in that market. So we're pretty confident, as we get through the process and we have those conversations, that they, too, will come to the same conclusion that these leases don't present us any opportunity to impact competition in the states.

Our next question comes from Robin Farley with UBS.

I just wanted to ask you about the transaction market generally. It seems like there's been a significant increase in activity just this year aside from just yourself. Is that something that you -- I know previously, you've talked about expected transactions to be lumpy and time in-between. Do you think there's something that's fundamentally different about the transaction market now? Maybe it's that there have been enough transactions, that multiples are a little more established and sellers have a better understanding of their values? Or in other words, do you expect the activity level to stay at maybe more elevated pace now?

Robin, I wish I knew. I'm not sure we have any real answer for that. Yes, we have always talked about transactions being lumpy and unpredictable and so forth. Quite happily, as I look at our spin and look at where -- what we've been able to do in growing AFFO and dividends, near and dear to my personal heart, it's been terrific. I mean, we've done an incredible job. We could never have predicted where it was going to come from, much as we have kind of told you and the market. But nonetheless, we've managed to kind of eke it out, and I expect we're going to be able to do the same. I don't think anything materially has changed in sellers' or owners' willingness to transact. It kind of falls out when it falls out. You may have something correct, though, right around pricing in the sense that people are more sensitized to the possibility of doing a transaction with a REIT. I think that has occurred, and I don't expect that to change. In fact, back to the St. Louis question, I think pretty soon, I think most of the United States is going to be owned by a handful, at least the real estate, owned by that small handful of companies that you're well aware of. So it's a trend that is not going to go backwards. But as to some pattern or predictability, I can't say that.

So it sounds like you're not having an elevated level of discussions now versus 6 months ago, just sort coincidental of the timing of a couple of things this year?

Steve, how would you want to characterize that?

No, Robin, to your point, I think valuations have risen. Our sector has seen the introduction of a new competitor in terms of the gaming REITs. Interest rates are trending upward and people may be fearful of that. I would suggest, yes, if you look at a year ago, there are more frequent dialogues that are taking place, and I think you're seeing it in terms of other transactions that have been announced. But you should expect that, consistent with the way we've approached our business in the past, we are going to stick with transactions that are accretive for our stakeholders rather than taking any kind of inordinate risk. So I would just leave it at that.

Our next question comes from John Massocca with Ladenburg Thalmann.

First off, Bill, congratulations on retirement.

Thank you.

And then, kind of looking at the balance sheet, given the various acquisitions you have lined up and the debt you have maturing later this year, how are you viewing the debt capital markets? And kind of maybe generally speaking, what kind of relative pricing do you think you can get versus the existing debt you have, given the movement in underlying rates?

I think it's still pretty competitive, but...

No, I mean, John, you should think about us looking at the maturities that we've got due here near term, and positioning the company's balance sheet to take on incremental senior sub-debt to fund the acquisitions as they come online, as they get closer to closing Q3 and Q4. Obviously, the market has ticked up. You've got the LIBOR yield curve that's ticked up that we've reflected in our guidance, but we don't see the capital markets in any way, shape or form, impacting our ability to access the capital markets at a fairly consistent level with where our bonds are trading in the secondary market, other than toward new issue premium. So I don't envision any obstacles. You've seen the reports from the rating agencies in terms of their outlook on the company as a result of the Tropicana/Eldorado transaction. And they've made no indication -- there's no indication that they'll make any movement in our underlying credit rating at this point in time.

And we're going to remain pretty conservative, as has always been the case. That goal has never changed.

Understood. I was a little bit more interested in kind of where relative pricing -- you expect kind of relative pricing to be versus your existing debt. I mean, is there any thought process on maybe lengthening out the term on your debt, given how potentially accretive these acquisitions could be, and maybe sacrificing a little bit of increasing interest expense, but getting longer term on your debt?

No, I think that will be sort of conditioned on what the market looks like when we're in the market. But yes, looking at a longer duration for our debt stack is something that our board has asked us to take a look at, and keeping sort of the ladders in our debt stack consistent so that we don't have any huge spikes in any of the out years, that we're faced with capital markets exposure -- any undue capital markets risk.

Yes, I'm not being cute. It's not rocket science, I think you could recognize what our goals would be, and that is to smooth this out over as long a period of time as pricing allows. So yes, I think we have a pretty clear sense of where we want to be, and I think we're going to get there.

And we've reflected those impacts in the guidance that we gave on the anticipated accretion from the transactions in the April 16 announcement.

Understood. And then, maybe kind of shifting gears a little bit. Looking at the Tropicana deal, was MontBleu not included in the master lease with Eldorado just because of the ground lease underneath it? Or were there other factors kind of driving that decision?

No, it's as simple as that. I mean, the MontBleu lease is really more of a facility lease rather than a ground lease. And we've had enough trouble getting assignments of underlying ground leases in other transactions that we did, that we did not want to try and get involved in the land owner consents here. And given the scope and scale of MontBleu relative to the overall Tropicana transaction, it was just something we were comfortable leaving behind.

(Operator Instructions) Our next question comes from Andrew Berg with Post Advisory.

First, if I can echo everyone else's comments with respect to Bill, congratulations, and best of luck in retirement. You'll definitely be missed. With respect to the comment made regarding refinancing -- potentially refinancing the debt, you said senior subdebt. Did you actually mean senior sub, or did you mean senior unsecured?

Senior unsecured. Sorry.

Okay. Just wanted to clarify that, that's what I thought. And then with respect to competition for assets, now that VICI's been out for a little while longer, has that changed at all the tone of the conversation you're seeing? Is that bumped up the bid levels a little bit here? Just wondering with respect to them being in the market now with a little bit more time, whether that's changed the dynamics and made it even more competitive than it had been?

Well, look, we liked it better when we were here by ourselves. I mean, that was a much happier circumstance. But look, they're going to do what they're going to do and we'll just have to wait and see how it plays out. I think my life experience has been -- we're not looking over our shoulders at them or even thinking what they may or may not do. They'll win their share of transactions. We expect we'll win ours. Deals happen for different reasons, even beyond price sometimes. So yes, I mean, I think it's too early to know how this is going to go. Let's see how it plays out over the next year.

There are no further questions. I would like to turn the call over to Peter for closing.

Well, thanks. Listen, thanks, everybody, for dialing in today. We're smiling, wishing a good farewell to Bill and going to appreciate his help over the next couple of months as we make this transition.

Look, this lines up to be a great year, a very, very good year. It looks like '19 is going to be a good year. So we're pretty excited about what's going on here. The company's in great shape. We've -- I feel good that the goals that we set out at the beginning when we did the spin have and are being met. And look, as a shareholder who collects a dividend every quarter, I'm a very happy guy, and I hope many of you are as well.

So thanks a lot. See you next quarter.

This concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time.